Vehicle sales being investigated

December 23, 2003

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Sharon Paterno ran a $4.4 million welfare car program for a Morgantown-based nonprofit organization. She also sold her 1993 Oldsmobile 88 to the same federally funded program for $3,500.Larry Richards worked under Paterno and was second-in-command of Wheels-to-Work at Human Resource Development Foundation. He, too, sold his car to the program. Richards collected $2,500 for his 1996 Ford Escort."If those staff sold cars, it was a good deal," said Homer Kincaid, the foundation's executive director. "I would not allow our staff to make money off the program. That's not acceptable."Paterno and Richards oversaw the purchase and sale of hundreds of vehicles over the past two years as part of the Wheels program, which leased cars to low-income West Virginians so they could drive to work and job-training programs.

Those transactions are now being scrutinized by investigators as part of a statewide probe into the Wheels program. Three other nonprofit agencies that ran Wheels programs also are being questioned.A Charleston Gazette review of Wheels program records shows:

The foundation purchased hundreds of cars at about $2,300 each, then sold them for scrap or sent them to the junkyard a year or two later.

The foundation sold about 200 cars without a dealer's license. State law says you need a license if you sell more than five cars a year.

The foundation bought cars from an unlicensed used-car dealer who purchased cars in Kentucky and brought them to rural Cabell County, but never titled them. Titles were transferred directly to the foundation. By doing so, the dealer didn't have to pay West Virginia's 5 percent privilege tax.

"There wasn't a license in the whole train of transactions," said Ruth Lemmon, executive vice president of the West Virginia Auto Dealers Association, who has reviewed documents related to some of the purchases. "They were skating the system."Last year, the state Department of Health and Human Resources reviewed the foundation's purchases and found no wrongdoing. In fact, reviewers praised the foundation's program, saying it put safe, reliable cars in the hands of low-income West Virginians.The state recently awarded the foundation, an offshoot of the state AFL-CIO, a $1 million contract to run a donated-car program in which the agency collects donated cars and gives them to welfare recipients.
Kincaid said the DHHR approved the vehicle transactions.He noted that Paterno and Richards sold their cars to the Wheels program below book value. Paterno's Olds sold for $700 less than its value as priced by the National Auto Dealers Association. Richards sold his car for $50 below value.Paterno and Richards could not be reached for comment.

Kincaid said Wheels car values depreciated quickly because welfare recipients mistreated the vehicles. More than 160 of the leased cars were damaged in accidents.Kincaid acknowledged that the foundation didn't have a dealer's license, but it didn't need one at the time, he said. The agency recently applied for a license, which the new donated-car program requires.The foundation sold most of its used cars last summer after state officials directed nonprofit organizations to unload vehicles that needed costly repairs. In July, the state quietly decided to scrap the lease program, which officially ends Dec. 31.

"We were selling them for the DHHR," Kincaid said. "They're a state agency. They told us the program was ending and we needed to get rid of the vehicles."State officials declined to say whether the sales complied with state motor vehicle laws. They said DHHR officials were reviewing the matter.DHHR staff members privately noted that state government agencies don't need a dealer's license to sell more than five cars a year.

And since the nonprofit groups ran Wheels programs for the state, they perhaps didn't need a license to sell vehicles, the employees said.Division of Motor Vehicles lawyers declined to say whether the foundation complied with state law.The foundation also bought at least 47 cars from Kenneth Ray Parsons, a Cabell County used-car dealer who didn't have a dealer's license. Many of those cars were purchased at an auction in Ashland, Ky.Unlike West Virginia, Kentucky doesn't have an "as is" law, which says cars can't be sold without a warranty."The reason you go to Kentucky is you're buying inferior vehicles," Lemmon said.Parsons also later bought more than 90 cars for about $90 each from the foundation.He said he followed the foundation's orders for buying and selling cars to the letter."They told me how to do it, and I did it," Parsons said. "They knew I didn't have a dealer's license. If I sold these cars illegally, so did they."Last fall, Parsons was one of several businesses who helped the foundation secure the $1 million grant to run the donated car program. Parsons promised to donate a dozen cars to the foundation.The foundation bought most of its cars — more than 300 — at Capitol City Auto Auction in Elkview. The group hired a broker who bought cars that Richards picked out.Kincaid said agency officials fielded complaints and investigated "irregularities" in the auction purchases but found no wrongdoing.State investigators also are examining records that detail Wheels program sales by Bluefield-based Community Action of South Eastern West Virginia, better known as CASE.In 2000, CASE sold 52 cars to a used-car dealer for $5,000. Those same cars had been purchased the year before for $118,000. And 22 of the vehicles had been bought from the same dealer, many at retail price.It's almost unheard of in car-sales business to purchase cars at retail prices, especially when buying in bulk."Paying retail, that's insane," said Bob Adams, who runs a Wheels program in New Hampshire. "That's like putting a sign on your back that says, 'Rip me off.'"To contact staff writers Eric Eyre and Scott Finn, use e-mail or call 348-4869.